The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 2 and 19 March 2015. A total of 1043 firms with 50 or more employees took part, of which 407 operate in industry excluding construction, 418 in services and 218 in construction.
The main findings for firms in services and in industry excluding construction
Inflation expectations in Italy and change in firms' selling prices
In March firms shaved 0.2 percentage points off their consumer inflation expectations for the next six months (down from 0.4 in the December survey), while expectations one year ahead were stable at 0.5 per cent. Forecasts over a longer horizon were revised up to 0.8 (from 0.7) for expectations two years ahead and up to 1.2 (from 0.9) for expectations five years ahead.
Firms on average reported that their selling prices were unchanged on an annual basis (as opposed to a 0.3 decrease detected in December). Firms in industry excluding construction expect the variation in their selling prices to be slightly positive, while firms in services expect a slight decrease. Over the next twelve months firms expect prices to increase by 0.6 per cent on average in both sectors (up from 0.2 in the previous quarter). A key factor suggesting such an increase in future selling prices is a pick-up in demand, compounded by a stronger than expected positive effect deriving from changes in the price of raw materials compared with the previous quarter.
Assessment of the general economic situation
Firms generally stated a much more positive view on Italy’s general economic situation compared with the previous quarter. The negative balance between reports of improvement and reports of deterioration in the general economy soared to 18.6 points (up from -23.1 in December). However, about two thirds of the respondent firms re-iterated their view that Italy’s situation is stable. The average probability assigned to an improvement of the economic situation in the next three months also increased by 6 per cent, and is now at 18.2 per cent.
Demand
The percentage of firms displaying an increase in demand for their products in the last quarter (20.5 percent) slightly exceeded the percentage of firms displaying a decrease (19.5). The balance was -5.8 per cent in the December survey. Short-term expectations also improved, the balance having risen to 21.2 per cent, up from 2.1 in December. This was especially due to a positive trend in Italy’s South and Islands.
The firms’ assessment on foreign demand for their products, both current and expected, continues to be more favourable. The balance between positive and negative views increased to 16.9 per cent, up from 12.6 in the previous survey. It failed, however, to attain the levels of June 2014. The balance between projections of an increase in demand expectations versus a decrease soared to 37.1 per cent (up from 25.8).
Assessment of business conditions
Firms’ expectations on the economic conditions in which they will be operating over the next three months were marked by cautious optimism, although the largest share of responses indicated an expectation of stability (71.6 per cent, compared with 75.8 in December); the balance between firms expecting an improvement and those expecting a deterioration became positive again (4.9 per cent, up from -6.8), mainly reflecting the assessments of industrial firms. Changes in demand and prices are expected to have a positive effect on economic activity, compounded by the stimuli deriving from current credit conditions and changes in the euro-dollar exchange rate. Uncertainty deriving from economic and political factors is expected to subside slightly.
Compared with the previous survey, expectations three years ahead have also been revised upwards; the balance between positive and negative views reached 55.2 per cent (up from 41.7). The percentage of firms reporting a decrease in their ‘normal’ level of activity in the last two years has gone down to 37.6 from 44.2 in December and 42.0 in September 2014, which was the first time this question was included in the survey. This compares with 23.9 per cent of firms reporting an increase in their ‘normal’ level of activity (the percentage was 22.7 in December and 24.4 in September) and 29.7 reporting no change (the percentage was 26.5 in December).
Investment conditions
Firms expressed a more favourable assessment on investment conditions compared with the
last quarter. The balance between responses indicating an improvement and those indicating a
deterioration became positive again, attaining 14.5 per cent, up from -15.0 in December. This reflects favourable developments in services and in industry excluding construction.
With respect to investment expenditure, 50.1 per cent of respondent firms expect it to remain at the levels of the second half of 2014 (compared with 48.9 per cent in the December survey). The balance between firms expecting an increase in investment expenditure and those expecting a decrease is 5.5 per cent (compared with 3.2 in the previous survey). If the construction sector is taken out of the equation, the balance becomes negative and confirms its downward trend (-2.4 per cent, compared with -0.7 in December), reflecting unfavourable conditions particularly in industry excluding construction. Nevertheless, the percentage of firms expecting stability has increased to 60.2, up from 57.9. For the year 2015 the balance between firms forecasting an increase in investment and those forecasting a decrease has risen to 16.4 per cent (up from 3.6), mainly reflecting a significant upward review of investment plans in the service sector. Among respondent firms, 45.5 per cent expect total investment expenditure to remain unchanged compared with 2014 (as opposed to 48.2 in the previous survey). Future prospects for investment excluding the construction sector continue to be less favourable than for overall investment. The percentage of firms expecting investment conditions to stabilize decreased slightly to 57.3 per cent. The balance between responses pointing to an increase of investment versus a decrease is now at 7.3 per cent, up from 0.2 in December.
Some 47.1 per cent of respondent firms expressed the view that they have overcome the most difficult phase of the downturn, up from 33.5 in December. The percentage of firms predicting a substantial improvement in their output in the coming months has also increased to 46.3 per cent, up from 35.5.
Liquidity and access to credit
Access to credit has eased further, continuing a trend underway since December 2012. The last quarter saw the balance between the share of firms reporting better financing conditions compared with the previous quarter and those indicating a deterioration increase to 4.7 per cent (up from -2.4), marking the first time it entered positive territory since the question was added to the survey in the first quarter of 2008. More in detail, 12.3 per cent of firms report better access to credit (compared with 10.1 in December) and 7.6 report less favourable access (compared with 12.5 in December). There is, however, an increase in the percentage of firms stating credit conditions have not changed (80.1 per cent, up from 77.4 in the previous survey).
Firms' expectations concerning their liquidity position over the next three months also improved: the share of those expecting it to be inadequate fell from 19.5 per cent in December to 15.5 per cent, while those considering it more than adequate increased from 18.5 to 21.6 per cent. The picture remains relatively more favourable for the largest firms.
Employment
Expectations for employment in the short term improved. The share of firms estimating an increase in staff numbers in the next three months rose to 18.2 per cent, from 11.8 in December; those expecting a decline fell from 19.9 per cent in the last survey to 14.4. Nevertheless, a large share of firms expects the situation to remain stable.
Construction firms
The views of construction firms concerning the general economic outlook turned much more optimistic in March, with the balance between expectations of an improvement and a deterioration reaching positive territory at 3.0 per cent, up from -34.9 in December. The probability assigned to an improvement in the scenario in the next three months nearly doubled and is now at 13.6 per cent.
Assessments of demand for the reporting firms’ own services also improved compared with the previous survey, with the balance between firms reporting an improvement and those reporting a deterioration reaching 3.4 per cent (up from -13.0 in December). The positive balance on short-term demand expectations widened again, rising from 2.9 to 17.5 percentage points. The respondent firms’ assessments of the economic conditions in which they are operating improved compared with the previous survey. The negative balance on assessments for the next three months narrowed from -18.3 to -2.0 per cent. The uncertainty attributable to economic and political factors appears to be the only obstacle to the firms’ business, and is abating compared with the December survey. Positive stimuli to the economy should come mainly from an increased demand for the firms’ services (both new and pre-existing orders) and also from the dynamics observed in the firms' own prices, as well as from variations in the exchange rate and changes in credit conditions. Expectations three years ahead recorded a significant improvement, with the balance between firms expecting better conditions and those expecting deteriorating conditions reaching 60.0 per cent, up from 36.3.
The percentage of firms reporting a decrease in their ‘normal’ level of activity in the last two years remained unchanged compared with the December survey. Conversely, 15.8 per cent of firms reported an increase, up from 14.2.
An improvement in the firms’ views concerning investment conditions has also been recorded in the construction sector, when comparing with the previous survey. The balance between positive versus negative views was 7.3 per cent, up from -22.9.
Approximately half of the firms think investment expenditure will stabilize in the first semester of 2015 compared with the second half of 2014, a share slightly lower than in the December survey.
For the current semester the share of firms reporting a decrease in capital accumulation is greater than the share reporting an increase, although the balance has narrowed compared with the previous survey. Conversely, the yearly balance turned positive (2.2 per cent, compared with -8.3 in December).
The share of construction firms stating the view that in the previous months they had overcome the most difficult phase of the downturn increased to 35.8 per cent (from 24.2 in December), while the percentage expecting a "substantial increase" in output in the upcoming months attained 48.4 per cent, up from 29.2.
Pessimism over employment conditions persists. The negative balance between expectations of an improvement and a deterioration has narrowed, however, and is now at -14.1 per cent, down from -20.3 in December.
